Alberta, Quebec to study rerouting Canadian crude eastward

By Richard Woodbury

5 Min Read

HALIFAX, Nova Scotia (Reuters) - Alberta, Canada's oil-producing heartland, and Quebec's separatist government will study the benefits of shipping the western province's crude to refineries in Quebec, a shift that could help cut the industry's dependence on the U.S. market.

The development is a shift from previous comments by Quebec officials that had cast doubt on the energy industry's quickly evolving plans to get oil sands-derived crude to Eastern Canadian refineries, which now handle mostly imported oil that arrives at a much higher price.

Alberta Premier Alison Redford and her Quebec counterpart, Pauline Marois, agreed on Thursday to set up a working party to look at the issue ahead of a Marois visit to Alberta next year.

"It's exactly the evaluation we will do, to see if it's advantageous for both sides to have Albertan oil refined in Quebec," Marois said on Thursday evening on the sidelines of a meeting of Canada's provincial premiers.

Redford, along with New Brunswick Premier David Alward, want to send Albertan crude to the Irving Oil Ltd refinery at Saint John, New Brunswick, which would mean using pipelines through Quebec. The refinery, Canada's largest, has capacity of 300,000 barrels a day (bpd).

With Albertan crude production expanding rapidly, Redford has actively pushed for a national energy strategy to get Alberta oil to market through pipelines or other means.

Neighboring British Columbia has resisted a plan by Enbridge Inc for the C$6 billion ($6 billion) Northern Gateway pipe to the Pacific Coast, for export to Asia, and U.S. President Barack Obama has, temporarily at least, blocked TransCanada Corp's $5.3 billion Keystone XL pipeline to Texas refineries.

Greg Selinger, premier of the Prairie province of Manitoba, through which some crude already flows, praised the idea as a way to build energy security in Canada.

"Providing energy into the Atlantic and Eastern provinces I think would be very positive for the country, both from a private investment point of view in the East, but also to provide further market opportunities for Canadian producers in the West," he told reporters on Friday in Halifax.

"So I think it's a good story for all of us if we do it properly."

CHEAP IN WEST, PRICEY IN EAST

Current pipelines routes oil from landlocked Alberta south rather than east. Eastern Canadian refineries pay prices tied to more expensive North Sea Brent, while Albertan producers, reliant on the U.S. market, sell their crude at a deep discount.

Redford said changing the routing for the oil might allow Quebec to get cheaper oil than its current imports.

Marois' newly elected separatist and left-leaning government had initially signaled resistance to the idea of taking oil from the Alberta tar sands. But Marois pointed out the potential employment benefits and noted Quebec's petrochemical industry.

"If we continue down this path, it's important that each side comes out a winner," she said.

Quebec is home to two big refineries, Suncor Energy Inc's plant in Montreal and Valero Energy Corp's facility in Quebec City, with capacities of 130,000 bpd and 265,000 bpd respectively.

Enbridge Inc plans to file an application with Canada's National Energy Board later this year for a project that would reverse the flow direction of its Line 9 so crude could flow to Montreal from Sarnia, Ontario, north of Detroit.

Enbridge would also increase the capacity of the pipeline to 300,000 bpd from 240,000, using what is known as a drag reducing agent, where a polymer is injected into the crude to cut friction.

That would mean the company would require little new construction on the pipeline, which was built during the energy crises of the 1970s. Originally, it shipped Western Canadian crude to Quebec.

The direction of flow was changed in the 1990s, allowing imported crude to flow to several refineries in southern Ontario and the U.S. Midwest. The premium price of such oil has rendered that uneconomic and the line has been idle.

TransCanada Corp has also proposed shipping Western Canadian crude to Quebec and beyond by converting one of the pipelines on its cross-Canada natural gas mainline to oil transport.

Last month, Chief Executive Russ Girling said the company would decide next year whether to go ahead with a project to carry up to one million barrels a day.